Question

demonstrate how amazon uses the primary and secondary value chain activities in its business activities

Answer 1

Amazon uses the primary and secondary value chain activities in its business in following ways:

Porter's value chain model is highly popular in the world of business. However, Amazon must not take it as a rigid, standalone framework by assigning the equal importance to all activities. The effective Value Chain Analysis requires Amazon to realise that all activities or functions do not require same scrutiny level. Hence, the first step of adapting the Porter Value Chain framework is to identify the importance of activities according to their role in product/service delivery process.

Here is the list of primary value chain activities as proposed by Porter:

Primary activities

The primary value chain activities of Amazon are directly involved in producing and selling the product to targeted customers. Analysis of primary value chain activities can improve the performance of Amazon as explained below.

1.Inbound Logistics

It is important to develop strong relationships with suppliers as their support is necessary to receive, store and distribute the product. Without analysing the in-bound logistics, Amazon can face various challenges in product development phases. Analysis of in-bound logistics requires a company to focus on every aspect of transformation from raw material to finished product. Some examples of inbound logistics are retrieving raw material, storing the inputs and internally distributing the raw material and components to start production.

2. Operations

The importance of analysing operational activities raises when raw material arrives, and Amazon is ready to process the raw material into the end product and launch it in the market. Some examples of operational activities are machining, packing, assembling and testing. Equipment repair and maintenance also falls into this category.

It includes both- manufacturing and service operations. Analysis of operational activities is important for improving productivity, maximising the efficiency and ensuring the competitive success of Amazon. The increased productivity can help Amazon to achieve consistent economic growth, increase profitability and set a powerful basis for competitive advantage.

3. Outbound Logistics

Outbound logistics include the activities that deliver the product to the customer by passing through different intermediaries. Some outbound logistics activities are material handling, warehousing, scheduling, order processing, transporting and delivering to the destination. Amazon can analyse and optimise the outbound logistics to explore competitive advantage sources and achieve its business growth objectives.

Because, when outbound activities are timely managed with optimal costs and product delivery processes put a minimum negative effect on the quality, it maximises the customer satisfaction and increases growth opportunities for the firm. Amazon should pay specific importance to its outbound value chain activities when its offered products are perishable and require quick delivery to the end customer.

4. Marketing and Sales

At this stage, Amazon will highlight the benefits and differentiation points of offered products to persuade the customers that its offering is better than competitors. Only producing a high quality product at affordable costs and distinctive features cannot create value until Amazon invests on the marketing and sales activities. The sales agents and marketers play an important role here.

Some examples of Amazon's marketing and sales activities are- sales force, advertising, promotional activities, pricing, channel selection, quoting and building relations with channel members. The company can use the marketing funnel approach to structure its marketing and sales activities. The marketing strategies can either be push or pull in nature, depending on the Amazon’s business objectives, brand image, competitive dynamics and current standing in the market.

Effective and wisely integrated marketing activities can develop the brand equity of Amazon com Inc and help it stand out from the competition. However, Amazon must avoid making false commitments about product features that cannot be fulfilled by the production department. It indicates the need to ensure coordination between different value chain activities.

5. Services

The pre-sale and post-sale services offered by the Amazon will play an important role in developing customer loyalty. The modern customers consider post-sale services as important as marketing and promotional activities. The power of negative e-WOM due to poor support service cannot be undermined in the current technologically advanced era. The company must analyse its support activities to avoid damaging brand reputation, and instead use it as a tool to spread positive word of mouth due to quick, timely and efficient support services.

Differentiation through primary value chain activities

Amazon can individually analyse the primary activities from all aspects and create differentiation basis by identifying the following sources:

• Inbound logistics: possible differentiation basis for Amazon are:
  • Procure high quality inputs to offer high quality finished product
  • Effective incoming input handling to reduce damage
• Operations: possible differentiation basis for Amazon are:
  • Flexible manufacturing system
  • Wide product range
  • Improved product appearance
  • Prevention of product pre-mature failure
  • Quick response to unique specifications
  • Improved customer satisfaction through lower defect rate
  • Improved product performance due to conformance to technical specifications
• Outbound logistics: possible differentiation basis for Amazon com Inc are:
  • Effective handling and better shipping to reduce product damage
  • Timely product delivery
  • Flexible delivery capabilities
  • Effective order processing procedure
• Marketing and sales: possible differentiation basis for Amazon com Inc are:
  • Improved relationships with suppliers and customers
  • Enhanced communication with customers by offering high quality information.
  • Brand awareness, reputation and image development due to extensive and effective advertising.
  • Effective coordination among product, research and marketing departments.
  • Wider sales force coverage.
• Services: possible differentiation basis for Amazon com Inc are:
  • Superior service quality
  • High quality technical assistance
  • Reliable and quick repair/maintenance service.

Secondary Activities

The support activities play an important role in coordinating and facilitating the primary value chain activities. Amazon can also benefit from analysis of its support activities as explained below.

1. Firm infrastructure

The firm infrastructure denotes a range of activities, such as- quality management, legal matters handling, accounting, financing, planning and strategic management. Effective infrastructure management can allow Amazon to optimise the value of the whole value chain. Amazon can control the infrastructure activities (or commonly called overhead costs) to strengthen the competitive positioning in the market.

2. Human resource management

Amazon can analyse human resource management by evaluating different HR aspects, including- recruiting, selecting, training, rewarding, performance management and other personnel management activities. The effective HR management can allow Amazon to reduce competitive pressure based on motivation, commitment and skills of its workforce. The company can also achieve its cost minimisation objectives by analysing hiring and training costs with their relative return. The heavy dependence of Amazon on employees' talent will increase the importance of this value chain support activity.

3. Technology development

In a modern, technological advanced era, almost all value chain activities depend on technological support. The technological integration in production, distribution, marketing and human resource activities requires Amazon to realise the importance of technology development. It can be divided into product and process technological development activities. Some examples are- automation software, technology-supported customer service, product design research and data analytics. The research and development department of Amazon is classified in this category.

4. Procurement

The procurement in value chain denotes the processes involved in purchasing the inputs that may range from equipment, machinery, raw material, supplies, raw material and other items necessary for producing the finished product. Due to its linkage with multiple value chain activities, Amazon should carefully consider its procurement activities to optimise the inbound, operational and outbound value chain.

As mentioned above, the application of Porter Value Chain model depends on understanding the importance of all activities. After understanding the relative importance of identified value chain activities, Amazon should highlight areas where value can be added, cost efficiency can be achieved, differentiation basis can be set, or processes can be optimised.

Differentiation through secondary value chain activities

Amazon can also analyse the secondary value chain activities to set differentiation basis:

• Firm Infrastructure: Amazon can set differentiation basis through:
  • Extensive database development for effective marketing
  • Advanced information system to get deeper customer insights.
• Human Resource Management- Amazon can set differentiation basis through:
  • Attractive rewards to encourage creativity and maximise productivity
  • Personnel training for effective interaction and superior customer service
• Technological development- Amazon can set differentiation basis through:
  • Quick new product development
  • Innovation integration in product designing
  • Innovative product features with patented technology
• Procurement- Amazon can set differentiation basis through:
  • Reliable transportation to ensure quick delivery
  • Procure high quality raw material and replacement parts.